Blog: The long journey to the No Interest Loan Scheme

Sian Williams is CEO of Switchback, and previously Director of Policy and Innovation at Toynbee Hall. Sian is a long-time advocate and champion of NILS and has been instrumental in the design and delivery of the scheme.

‘True progress begins with something no knowledge economy can produce: wisdom about what it means to live well.’

Rutger Bregman, “Utopia for Realists and how we can get there” p.19 Bloomsbury Press 2017

The long journey to the No interest loan scheme

July 2018: the high-cost credit price cap had been in force for just over three years, but all the evidence showed that the mainstream market still wasn’t innovating to meet the needs of customers requiring affordable small loans. Feedback from the community finance sector – including credit unions – was that too many of those borrowers failed their affordability checks, and the sector didn’t have the capacity to take on the risk of multiple defaults.

The consequence was that a section of society most vulnerable to the impact of financial exclusion remained stuck in the credit gap; if they needed a rental deposit to move into safe and secure housing, pay a repair bill or buy new clothes, invest in a training course, buy a car or take their kids on holiday, their only options remained to go without or go to the high-cost credit market or – even worse – an illegal lender.   

We believed that there was a solution; interest-free small loans for those refused by the market which could also help people build their long-term financial resilience. Through providing subsidised access to affordable credit through existing lenders, we aimed to enable financially excluded families to take up more opportunities to live well now and increase their access to mainstream financial products in the future.

We drew heavily on learning from Australia’s large-scale NILS scheme, incorporating learning from the UK financial inclusion sector to adapt the approach to the UK’s socio-economic and regulatory environment. But we had no way of knowing how well the idea would work here in practice. It took a leap of faith for HM Treasury and other partners to turn the idea into reality.

£10m lent, 13,000 people helped

Six years later, that level of courage to innovate without certainty has led to the UK NILS pilot lending an incredible £10m to people who previously had no choice but to rely on high-cost lenders, or have no options at all.

Repayment rates are significantly better than predicted, including for borrowers who previously had struggled to repay higher-cost loans, with 9 in 10 borrowers experiencing no difficulty in repaying.

Each of these 13,175 small loans has its own story of exclusion turning to inclusion, helping people to access safe housing, build their skills and increase their employability, feed and clothe their children and cover healthcare and funeral costs. And I have no doubt that they will also have reduced stress and anxiety through preventing unmanageable debt, homelessness and unemployment, and consequently reduced state spending on dealing with crises now avoided.

We will have to wait a while longer to learn the full impact from PwC’s final evaluation, but the early results are extremely encouraging. In short, access to a no-interest loan is clearly helping some of the most vulnerable people in our society live better and reducing the cost of financial exclusion to the state.

What next?

So far, so good. But the big question now is where do we go from here?

We have already seen in this pilot that true progress requires a hefty dose of courage to try something new and untested. My hope is that, six years on from the first HMT investment in the NILS pilot in the 2018 Autumn Statement, that “wisdom about how to live well” prevails again, and goes further.

We know that scaling a NILS scheme to reach all potential beneficiaries will require significant investment. That realistically has to come from the mainstream market, which needs thought-leaders in that sector to have the courage to think differently about how they can support financial incision.

The palpable sense of excitement and renewed optimism at the Financial Inclusion conference in July and the new government’s commitment to deliver a National Financial Inclusion Strategy gives me hope that we can collectively act on the learning from the NILS pilot about the positive impact of NILS and work together to create a sustainable solution to the credit gap so that more people in our society can live well.